By Robert W. Beckman —

Eighteen years ago, the United States Agency for International Development (USAID) launched a program to foster energy integration in South Asia. The South Asia Regional Initiative for Energy Cooperation and Development — generally referred to as ‘SARI/Energy’ — aimed to address the lack of trade in electricity and natural gas among the nations of the subcontinent. While some meaningful progress has been achieved in energy integration and intra-regional trade, significant opportunities remain for South Asian states to better leverage their collective electricity and gas resources.

In SARI/Energy’s initial assessment, the particular distribution of existing and potential energy resources in South Asia meant that optimal returns from investments in energy would have to be based on intra-regional trade. Nepal and Bhutan’s hydropower would need to be available to India and Bangladesh, anticipated large deposits of natural gas in Bangladesh would need to be commercialized with exports to India in mind, and India’s power surplus eastern grid should be able to transfer electricity to Bangladesh.

Fast forward to 2018 — the Bangladesh, Nepal and Bhutan electricity grids are now connected to India. Large-capacity hydropower plants have been built in Bhutan with Indian financing, with most of the electricity generation designated for India (see Figure 1). In addition, a 500 megawatt (MW) capacity connection was inaugurated in October 2013 on Bangladesh’s western border with India and a 160 MW link crosses the eastern border. Both links are scheduled to be expanded. In addition, electricity sales from Nepal to Bangladesh via India have recently been worked out. Yet commercialization of Bangladesh’s gas reserves has not been realized and other areas of potential regional energy integration — such as the India-Sri Lanka undersea electric power connection — have languished or been set aside by policymakers.

The complex agreements required for energy trade were not in place when SARI/Energy was first established. It is worth remembering that bilateral relations in South Asia have a troubled history, with constant tensions, some originating in the 1947 partition of British India, some unresolved from the emergence of Bangladesh in 1971, and many arising from the imbalance of economic size between India and its neighbors. In spite of efforts at regional cooperation under the aegis of the South Asian Association for Regional Cooperation (SAARC), which had been ongoing for decades, little had been accomplished in the area of trade in energy or other products.

India’s core policy was to maintain control through one-sided bilateral arrangements. The Ministry of External Affairs in Delhi held a stranglehold over negotiations on agreements that would result in loss of such control. This status quo began to shift in 2000 when India signed off on the establishment and funding of an office housed at USAID/New Delhi that has since served as the base of operations for SARI/Energy, with a beginning participation of six countries. In 2004, the program was expanded to include Pakistan and Afghanistan.

In the design and opening phases of the SARI program, it was widely believed the low-hanging fruit would be Bangladesh gas exports to India. For years, experts had believed that the 1960s estimate of approximately 14 trillion cubic feet (TCF) in gas reserves was too conservative. A series of reservoir studies in the early 2000s suggested that reserves were actually in the range of 30-35 TCF — allowing for quick exploitation with a portion of development costs being paid for by exports to India. This scenario never happened. Bangladesh’s current estimated reserves are deemed to be 7.3 TCF. Exports have been ruled out. However, recent awards of promising offshore blocks to Bangladesh have raised expectations again — with India’s ONGC and Russia’s Gazprom both holding exploration contracts.

In its first phase, SARI/Energy also performed a cost/benefit analysis of an undersea link from Sri Lanka to India. Although judged of great potential benefit, this idea became hostage to the strife in northern Sri Lanka and Indian domestic politics, and has not been pursued.

However, as mentioned, the India-Bangladesh electricity connection has flourished. This is partly attributable to the sustained advocacy of SARI/Energy through its funding of cost/benefit studies and joint training and other professional contacts between Indian and Bangladeshi electric utilities. The program also worked in close coordination with the Asian Development Bank toward this end.

Figure 1. Hydropower Installed Capacity and Projected Capacity for BBIN Sub-region

Country	Hydropower Installed Capacity	Hydropower Projected Capacity (Economically Viable)
Bangladesh	230 MW	N/A
Bhutan	1,615 MW	12,000 MW
Nepal	753 MW	43,000 MW
India	48,974 MW	148,700 MW

In 2013, a successor project was launched, under the name South Asia Regional Initiative for Energy Integration (SARI/EI). The primary objective for SARI/EI is to support the evolution of cross-border electricity trading among regional countries. Operating through three multinational task forces, the project has pursued policy dialogue on coordination of legal and regulatory frameworks, transmission system interconnections, and the formation of a South Asia regional electricity market. These efforts were rewarded with the November 2014 signing of the SAARC Framework Agreement for Energy Cooperation at the Kathmandu summit.

Electricity transmission remains an outstanding concern. India allows power trading internally by both public and private sector entities and this domestic electricity market has grown considerably since it was authorized in the early 2000s. The systems in place offer a solid platform for expanded electricity trade within the region (see Figure 2). However, India has only recently allowed Bangladesh to buy power from Nepal (but not yet Bhutan), wheeling power through India at a reasonable transmission cost — the sine qua non of an integrated electricity market.

Figure 2. Cross-Border Electricity Trade for BBIN Sub-region in 2016

Country	Electricity Export (FY 2016)	Electricity Import (FY 2016)
Bangladesh	N/A	3,822 GWh
Bhutan	6,133.2 GWh	86.6 GWh
Nepal	3.2 GWh	1,777.7 GWh
India (April 2016-Feb 2017)	5,798 GWh	5,585 GWh

The SARI/EI program in its current form appears to reflect the reality that further energy integration will happen mainly in the so-called ‘BBIN’ sub-region, i.e. among Bangladesh, Bhutan, India, and Nepal. Considerable progress has been made under the BBIN framework, aided by India’s ‘Look East’ policy. Prime Minister Narendra Modi has thrown his strong personal support behind increased trade and transit with Bangladesh. Bus service now supplements the Dhaka-Kolkata ‘Maitree Express’ rail passenger service. A broad-gauge rail link with the Indian state of Tripura on Bangladesh’s eastern border is under construction. Truck freight from other BBIN partners is expected to be allowed to pass through Bangladesh under customs seal by April 2018.

These steps toward a broader-based economic integration will likely foster increased trade in both electricity and fossil fuels. Yet in the big picture, they have occurred against a backdrop of very low merchandise trade flows among South Asian nations. According to the World Bank, intra-country trade is lower than for any comparable grouping; less than five percent of total trade versus, for example, 24 percent for ASEAN. High levels of informal trade likely bring South Asia’s intra-country trade closer to ten percent of total trade, but there is still a significant gap. Limited physical infrastructure for trade at border crossings, cold war-type barriers between India and Pakistan, and, until recently, lack of transit through Bangladesh have contributed to this situation. An even more decisive factor has been India’s failure to reduce non-tariff barriers in its trade with Bangladesh and Pakistan.

For fuller South Asian regional energy integration to be achieved, India and its neighbors must implement market-driven, commercial practices in the trading of power, including long-term contractual instruments and medium/short-term trading exchanges.

Mr. Robert W. Beckman was the first regional coordinator and program manager for SARI/Energy in Delhi, India and an expert on South Asia’s energy markets and infrastructure. He can be reached via email: Beckman.bbg at Gmail.com.